Investors Urge South Africa to Leave Their $163 Billion Savings

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(Bloomberg) — South Africa’s 2.4 trillion rand ($163 billion) savings industry has a request for the ruling party: stop threatening to dictate where funds must invest and get going on projects that pensions can help finance.

“You can prescribe, but nothing will happen unless you have proper projects,” Leon Campher, the chief executive officer of the Association for Savings and Investment South Africa, an industry body of fund managers and insurers, said in an interview in Johannesburg. “The savings industry would gladly invest in infrastructure or developmental projects provided they are properly done.”

President Cyril Ramaphosa last month echoed the election manifesto of the African National Congress saying a discussion was required to investigate the use of prescribed assets as a tool for fostering economic growth. A lack of detail on how retirement funds could be forced into investing in state-owned companies or government projects has stoked concerns it could leave pensioners poorer if these don’t make inflation-beating returns.

There has been very little visible progress since Ramaphosa last year announced that the government would create a multi-billion rand infrastructure fund. Banks and even Ramaphosa’s envoys appointed to lure investment into the country have complained over a dearth of projects that has led to the near demise of South Africa’s construction industry.

“If it’s funding for developmental projects South Africa is after, government would be better off ensuring that the infrastructure initiative proposed by the president in his fiscal stimulus plan a year ago gets going,” Campher said.

Managers Worried

The association and banking industry are working with the Development Bank of Southern Africa to flesh out details of an infrastructure initiative, Campher said, adding that DBSA has indicated it could be up and running by the end of this year.

“The concept is that you have the government pot, the DBSA pot and you have got the savings pot so you can create what is called a blended-finance model,” he said. “Recruiting retired and semi-retired technical experts, people with the appropriate skills, to prepare projects will be important for attracting funding.”

Money managers are worried that “sooner or later” prescribed assets will be implemented, according to the 2019 BEE.conomics survey done for 27four Investment Managers and published on Wednesday. At least 83% of participants from the industry said they consider prescribed assets as threat.

“Prescription is a clear violation of property rights, because it impairs choice,” said Andrew Canter, chief investment officer at Futuregrowth Asset Management in Cape Town, South Africa’s biggest specialist fixed-income money manager. “There is ample global evidence that where prescription has been tried it has reduced returns,” he added, citing Argentina, Egypt, Nigeria and South Africa during racial-segration rule as examples.

“If you tell people how to invest their funds, you are undermining the savings culture and effective asset allocation,” Canter said. “It will go to court, no matter what the government proposes. If you let the wolf into the hen house, the wolf will eventually eat the chickens.”

(Updates with comment from BEE.conomics survey, Futuregrowth starting from third-to-last paragraph.)

To contact the reporters on this story: Roxanne Henderson in Johannesburg at rhenderson56@bloomberg.net;Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Alastair Reed

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Investors Urge South Africa to Leave Their $163 Billion Savings